N9.Account 22-30. NEW EQUIPMENT PURCHASE, INCOME TAXES. Captain Inc.is considering the purchase of new equipment that will automateproduction and thus reduce labor costs. Captain made the followingestimates related to the new machinery:Cost of the equipmentReduced annual labor costsEstimated life of equipmentTerminal disposal valueAfter-tax cost of capitalTax rate$ 128,000$ 35,00010 years08%30%SAssume depreciation is calculated on a straight-line basis for taxpurposes. Assume all cash flows occur at year-end except for initialinvestment amounts.Required1. Calculate (a) net present value, (b) payback period, (c)discounted payback period, and (d) internal rate of return.2. Compare and contrast the capital budgeting methods inrequirement 1.

Capital budgeting refers to the methods used for estimating the viability of the projects using…

Answered: Required 1. Calculate (a) net present…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

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Walker Inc. is considering the purchase of new equipmentthat will automate production and thus reduce labor costs. Walker made the following estimatesrelated to the new machinery: Cost of the equipment $120,000Reduced annual labor costs $40,000Estimated life of equipment 5 yearsTerminal disposal value $0After-tax cost of capital 8%Tax rate 25%Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur atyear-end except for initial investment amounts. Q. Calculate net present value?
Quary Company is considering an investment in machinery with the following information. Initial investment Useful life Materials, labor, and overhead (except depreciation) Depreciation-Machinery $ 254,000 9 years Salvage value Expected sales per year $ 20,000 12,700 units Selling, general, and administrative expenses Selling price per unit $ 57,150 26,000 6,350 $ 10 (a) Compute the investment's annual income and annual net cash flow. (b) Compute the investment's payback period. Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B Compute the investment's annual income and annual net cash flow. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Selling, general, and administrative expenses Depreciation-Machinery Income Net cash flow Income Cash Flow $ 127,000 (57,150) (6,350) (26,000) $ 89,500 $ 127,000
7) , Emkay, Inc. is considering an investment in a new production equipment to boost its revenue. For this new investment, the following data apply: Purchase price = $900,000 $360,000 from company funds and $540,000 from a loan} Useful Life: 4 years Depreciation: MACRS-GDS 3-year property Effective tax rate: 35% Estimated salvage: $90,000 Estimated annual O&M costs: $48,000 Estimated new annual revenue: $360,000 Conditions on loan: Nominal annual rate of 5% per year compounded annually. The loan is to be repaid over 3 years with equal annual payments. 3 a) Loan calculations - principal and interest payments. (Round off values to the nearest dollar) b)' EOY BT&LCF 0 2 Find the ATCF for each year of this investment (Round off values to the nearest dollar). MACRS- GDS Deduction 3 Loan Loan Interest Principal Payment Payment Taxable Income Tax ATCF
A project under consideration by PHI Inc. is summarized. The company uses straight-line depreciation, pays taxes at the 30% marginal rate, and requires an after-tax MARR of 12%. Use net present worth to determine whether the project should be undertaken.
Required information [The following information applies to the questions displayed below.] Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. The investment costs $45,000 and has an estimated $6,000 salvage value. Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation. Choose Numerator: 1 1 Accounting Rate of Return Choose Denominator: G O
Required information [The following information applies to the questions displayed below.] Montego Production Company is considering an investment in new machinery for its factory. Various information about the proposed investment follows: Initial investment Useful life Salvage value Annual net income generated Montego's cost of capital Assume straight line depreciation method is used. Help Montego evaluate this project by calculating each of the following: $ 860,000 6 years Net Present Value $ 20,000 $ 66,000 11% Required: 4. Recalculate Montego's NPV assuming its cost of capital is 12 percent. (Future Value of $1, Present Value of $1. Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.
Quary Company is considering an investment in machinery with the following information. Initial investment Useful life Salvage value Expected sales per year (a) Compute the investment's annual income and annual net cash flow. (b) Compute the investment's payback period. Required A Required B Complete this question by entering your answers in the tabs below. $ 335,000 9 years $ 20,000 16,750 units Annual Amounts Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Selling price per unit Compute the investment's annual income and annual net cash flow. Expenses Income Net cash flow $ 75,375 35,000 8,375 $ 10
M101.
Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation.
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H7. Query Company is considering an investment in machinery with the following information. Initial investment $ 200,000 Materials, labor, and overhead (except depreciation) $ 45,000 Useful life 9 years Depreciation—Machinery 20,000 Salvage value $ 20,000 Selling, general, and administrative expenses 5,000 Expected sales per year 10,000 units Selling price per unit $ 10 (a) Compute the investment’s annual income and annual net cash flow. (b) Compute the investment’s payback period. Please show all step by step calculation
Consider the following information: Initial cost of equipment $108,000 Sales tax and delivery costs $7,000 Estimated life 7 years Salvage value $11,000 Annual cash inflows $31,000 Estimated cost of capital 10% Without considering the effect of income taxes, the net present value of the equipment is: O $48,566. $41,566. $39,921. $42,921.

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Required 1. Calculate (a) net present value, (b) payback period, (c) discounted payback period, and (d) internal rate of return. 2. Compare and contrast the capital budgeting methods in requirement 1.